Dive Brief:
- The U.S. Postal Service has reduced its volume moved by air transport by more than 90% over the past two years, Postmaster General and CEO Louis DeJoy said in prepared remarks to the agency's Board of Governors last week.
- Due to the agency's continued shift away from air transport, today more than 95% of both First-Class mail and packages are moved through the agency's less-expensive ground transportation system, DeJoy said.
- The reductions put the financially pressured Postal Service on pace to reduce its annual air transportation cost by about $1 billion, according to DeJoy.
Dive Insight:
The Postal Service is making swift progress in shrinking its need for air transport, for which it relies on FedEx Express, the agency’s top supplier. The move is part of the Postal Service’s 10-year transformation plan to rightsize its finances and better compete with major carriers.
Transportation expenses decreased by 6.2% YoY for the quarter ending June 30, according to an agency financial report. This was driven by a 27.6% reduction in air transportation spending as it encountered overall lower package volume and shifted volume to highway transportation.
DeJoy said the agency's service has been strong throughout 2023 despite the strategic overhaul, with 98% of the U.S. population receiving mail and packages in fewer than three days.
The Postal Service is also overhauling its network footprint. The agency aims to open nine more regional processing and distribution centers, as well as renovate 27 local processing facilities and 60 additional sorting and delivery centers, DeJoy said.
"Each location initiated will continue to provide significant opportunities to reduce transportation and wasteful redundant handling costs while increasing our service performance and market opportunities," he said.
Despite the agency's progress in reducing transportation costs and improving its network, it's still battling high inflation and a pullback in advertising spending, impacting marketing mail volume. Operating revenue fell by 0.9% YoY to $18.6 billion for the quarter, while operating expenses increased by 9.6% YoY to $20.5 billion.
"Continued rising costs in several areas of our business pose a challenge,” CFO Joseph Corbett said in a statement. "We continue to manage the costs within our control, such as by reducing work hours by 6 million hours compared to the same quarter last year and by focusing on transportation and other operating costs."
To help improve the Postal Service's financial future, DeJoy said the agency is looking at "continued but more aggressive cost reductions to our operations" — he said the Postal Service has already made large reductions in work hours — as well as increasing package delivery revenue.
The Postal Service has made clear amid its transformation plan that it wants to compete more effectively with package delivery companies FedEx and UPS, attracting more commercial shippers to counteract declining mail volumes.
The launch of USPS Ground Advantage in July is one example of the agency's efforts to improve its revenue. It formed the 2 to 5-day ground shipping service by consolidating three existing delivery options.
"The elimination of Retail Ground, Parcel Select Ground, and First-Class Package Service simplifies our operating and transportation process while increasing the size of our targeted market in serving the package industry," DeJoy said.
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